PS Leader Accuses Government of Profiting From Inflation — Demands Zero VAT on Essential Goods
The leader of Portugal's Socialist Party (PS), José Luís Carneiro, accused the government on Tuesday of "making money from the sacrifices of the Portuguese people," arguing that the state stands to collect an extra EUR 500 million in revenue if...
The leader of Portugal's Socialist Party (PS), José Luís Carneiro, accused the government on Tuesday of "making money from the sacrifices of the Portuguese people," arguing that the state stands to collect an extra EUR 500 million in revenue if inflation overshoots the budget forecast by 1.5 percentage points.
Speaking to journalists during a visit to Lisbon's Mercado de Benfica, Carneiro called the situation "immoral" and pressed the government to implement zero VAT on a basket of essential goods — a measure Finance Minister has so far rejected.
The EUR 500 Million Claim
In a document distributed before Carneiro's visit, the PS detailed its calculations: if inflation reaches 3.6% — 1.5 points above the government's 2.1% budget assumption — the state would pocket an additional EUR 500 million in VAT revenue alone. Extended across all tax categories, the party estimates the revenue windfall could reach EUR 1.668 billion, equivalent to 0.52% of GDP.
The argument is straightforward: as prices rise, so does the VAT take, because Portugal charges VAT as a percentage of the sale price. Higher fuel, food, and energy costs automatically generate more tax revenue without any policy change — a dynamic economists call "fiscal drag."
What the PS Wants
Carneiro outlined several priority measures the party first presented to Prime Minister Luís Montenegro a month ago, all of which were rejected:
- Zero VAT on a defined basket of essential food items
- Temporary VAT reduction on fuel and natural gas from 23% to 13%
- ISP exemption on agricultural diesel
- Support package for goods and passenger transport companies
The PS estimates these measures would cost approximately 0.15% of GDP per quarter — a figure the party considers manageable given the inflation-driven revenue surplus.
The Political Calendar
The timing is deliberate. The PS will bring these demands to a parliamentary debate on Friday, forcing the government to defend its approach publicly just days before the 20% US tariff on EU goods takes effect on April 9.
Carneiro's critique taps into a growing public frustration with the cost-of-living squeeze. With diesel above EUR 2 per litre, food prices climbing, and the Middle East conflict showing no signs of de-escalation, the political pressure on Montenegro's government is intensifying from multiple directions simultaneously.
Asked about the Finance Minister's opposition to zero VAT, Carneiro was blunt: "He is wrong."
Carneiro has since escalated the fight — read about the PS cost-of-living resolution that was voted down in parliament.